How to Rebuild Your Credit after Bankruptcy
By Mike Wallace, Bankruptcy Attorney, serving clients in all of East Texas, including Lufkin, Nacogdoches, Palestine, Jacksonville and other surrounding communities
I frequently tell clients that have filed for Chapter 13 or Chapter 7 bankruptcy protection that there is life after bankruptcy.
Contrary to the misconception that bankruptcy ruins you for life, I often see clients in better financial condition a short time after receiving a bankruptcy discharge.
I have said it before, there is nothing honorable in dodging your creditors.
It is better to send a message to the creditors through the legal process of bankruptcy that you cannot pay them.
The alternative is to have a credit report filled with charge-offs, repossessions and foreclosures.
There are some suggestions for things you can do to rebuild your credit worthiness after having filed for bankruptcy.
The most obvious is to pay those creditors that you have agreed to pay in the Chapter 13 or have reaffirmed their debt in a Chapter 7.
So, if you have signed a reaffirmation agreement with a creditor on a vehicle in Chapter 7 it is critical that you make your payments in a timely manner.
Other things you can do to rebuild your credit:
- Open a checking and savings account if you don’t already have them established and in good standing. Do your homework and find a bank that has the services you need and does not hit you with outrageous fees and minimum deposit requirements.
- Obtain a secured credit card after you have received your bankruptcy discharge. To obtain a secured credit card you will place a deposit with the credit card company and will use the card like any other major credit card. Maintain a small debt to credit ratio on the card and make sure that you timely make the payments. If you have $250.00 on deposit, then don’t let the balance go higher than $50.00. Don’t pay the huge start-up fees for secured cards and make sure that they report to the three major credit bureaus. One site that you might visit for secured credit card options is CreditCards.com.
- After you have established yourself with a secured card, then apply for a retail or gas credit card. Gas cards are the best idea because gas is a necessity for most people and you won’t be tempted to spend money that you don’t have.
- Also, once you have maintained a secured card in good standing for 12 months, then see if the bank will allow you to convert to an unsecured card. Do not use the secured card or unsecured card for any other purpose other than to rebuild your credit. In other words, pay the balance off at the end of the month. You need to learn to live within your means.
- Monitor your progress if you are trying to rebuild after bankruptcy. Wait at least three months after you have received your discharge and obtain your one annual free report at AnnualCreditReport.com. Dispute any mistakes associated with your report and use Credit.com’s free credit score to monitor your score for free on a monthly basis. I suggest that you make any disputes in writing and mail by certified mail to the bureau. The bureau has thirty (30) days to respond to your complaint.
- Put a budget together and have a place for every dollar. Dave Ramsey has an incredible number of resources available to those who want to properly manage their money. Visit DaveRamsey.com or attend one of Dave Ramsey’s Financial Peace University events being held in your area.
Because God has blessed me with the opportunity to practice law, and more specifically, to practice in an area where I help people in financial distress, I would like to share with you a few scriptures from God’s word that I believe might encourage you (all quotations from the New International Version):
- “I know that the Lord secures justice for the poor and upholds the cause of the needy.” Psalm 140:12
- “I will repay you for the years the locusts have eaten…” Joel 2:25
- “Do not be anxious about anything, but in everything, by prayer and petition, with thanksgiving, present your requests to God. And the peace of God, which transcends all understanding, will guard your hearts and your minds in Christ Jesus.” Philippians 4:6-7
- “Better a poor man whose walk is blameless than a rich man whose ways are perverse.” Proverbs 28:6″
- “But the needy will not always be forgotten, nor the hope of the afflicted ever perish.” Psalm 9:18
As always, any opinions expressed on this website are just that, opinions. So if you have a question regarding bankruptcy or debt relief, then please give me a call to discuss your individual situation. Bankruptcy, as many other areas of the law are very case or fact specific. I pride myself on giving you the answers to your questions that are based on your individual circumstances.